Image

Legal Guide to Formation and Operation of Investment Company in Nepal

Tuesday - Oct 14, 2025 (Updated: Jun 4, 2026)
Legal Guides
Business Law
This legal guide post explores the formation, operation, and regulatory landscape for investment companies in Nepal. It provides actionable insights on capital requirements, SEBON compliance, tax implications, and current procedural pathways, empowering investors and business leaders with the knowledge needed to navigate Nepal’s investment company sector in 2025.

Introduction

Investment companies have emerged as strategic vehicles for channeling capital across diverse sectors in Nepal. As regulatory frameworks evolve, both domestic and foreign investors need updated, clear guidance on launching and managing successful investment companies. This guide breaks down the process, highlights regulatory requirements, and links to essential legal updates and sector insights for 2025.

What Is an Investment Company?

An investment company is a service-sector entity incorporated under Nepal’s Companies Act, 2006. Its primary business: investing in the equity of other companies, acting as an institutional shareholder. Unlike manufacturing or direct service entities, investment companies focus on shareholdings—not daily business operations.

Key Regulatory Authorities & Industry Classification

  • Investment companies are registered with the Office of the Company Registrar, functioning as per the Companies Act, 2006 and the Industrial Enterprises Act, 2020 (IEA).
  • The Securities Board of Nepal (SEBON) is the main oversight body, particularly where capital raised meets or exceeds NPR 50 million or annual transactions are above NPR 10 million.
  • Other authorities: Department of Industry (DOI), Nepal Rastra Bank (NRB) where foreign investment is involved.

Further reading:

Models of Investment Companies

1. Onshore (Domestic)

  • Incorporated in Nepal and owned totally by local investors.
  • Regulated by the Companies Act and subject to IEA conditions.

2. Onshore (Foreign-Invested)

  • Established in Nepal but partly/fully owned by non-Nepali investors.
  • Subject to FITTA, FERA, and approval from DOI and NRB.

3. Offshore

  • Foreign entity investors can avoid local incorporation. Investments must be case-specific, following direct DOI and NRB approvals.

Explore differences:

Formation & Procedural Requirements

  • Clearly specify the objectives in the Memorandum of Association (MoA).
  • Minimum capital: NPR 1 billion.
  • Only equity investments are permitted.
  • Board and shareholder details, along with paid-up capital documents, to be submitted for SEBON registration.

Step-by-step IPO guide:

Permitted Sectors & Investment Activities

Investment companies may only invest in these sectors:

  • Energy
  • Transportation
  • Communication
  • Agriculture
  • Tourism
  • Manufacturing/Processing
  • Information technology (IT)
  • Mineral extraction

Prohibited Activities

  • Investing in secondary market shares or through debt instruments (loans, bonds, debentures)
  • Banking or cooperative functions
  • Shell companies or real estate brokerage
  • Borrowing from Nepali banks or using foreign bank guarantees for local borrowing

References:

Taxation & Capital Gains

  • Corporate income tax: 25%.
  • Dividend withholding tax: 5% (final for dividends).
  • Capital gains: 10% for listed shares, 15% for unlisted.
  • Changing ownership by more than 50% within three years triggers tax events and accounting changes.

SEBON’s Role & Ongoing Compliance

SEBON regulates investment companies, especially those raising IPOs or those above key capital thresholds. Companies must:

  • Register with SEBON
  • Submit audited accounts
  • Regularly disclose shareholder/board information

Post-IPO, rigorous ongoing compliance is vital for transparency.
See also: IPO Rules for Investment Companies in Nepal (2025)

Blacklisting Risks

  • Defaults by companies or their subsidiaries can lead to widespread blacklisting, impacting directors, CEOs, and influential shareholders.
  • Investment companies must vigilantly monitor financial exposure and compliance to avoid cascading liabilities through their investment network.

Conclusion: Strategic Pathways for Investors

While Onshore Domestic, Onshore Foreign, and Offshore models all provide viable paths for investment in Nepal, the right model incorporates both business objectives and risk appetite. Regulatory complexity and capital requirements are highest for Onshore Foreign and lowest for Offshore, but all must abide by Nepal’s legal and fiscal regime.

Related Insights


Contributors

Related Readings

Legal Guides
Nov 30, 2025

Income Tax in Nepal: Comprehensive Legal Guide 2025 (Rates, Rules and Compliance)

Complete 2025 guide to income tax in Nepal: Updated rates & slabs for individuals/companies, deductions, withholding rules, incentives, compliance, and recent Finance Act changes.
Read More about Income Tax in Nepal: Comprehensive Legal Guide 2025 (Rates, Rules and Compliance)
Legal Guides
Dec 1, 2024

Corporate Social Responsibility (CSR) in Nepal: FAQs

A comprehensive guide addressing frequently asked questions about Corporate Social Responsibility in Nepal, including legal frameworks, practical applications, and societal impacts.
Read More about Corporate Social Responsibility (CSR) in Nepal: FAQs
Legal Guides
Sep 22, 2025

Legal Guide to Retrenchment and Layoff Reserve under Employment Laws of Nepal

This article provides a detailed, practical legal guide on retrenchment and layoff reserve under Nepal's Labor Act 2074 (2017) and associated labor laws. It explains when and how enterprises can legally reduce their workforce, the procedural requirements, employee rights, compensations, and key differences between retrenchment and layoff reserve. A must-read for employers, HR professionals, and employees for understanding labor management in Nepal.
Read More about Legal Guide to Retrenchment and Layoff Reserve under Employment Laws of Nepal